Boutique whiskey makers fret over how hard EU tariffs will bite

A bartender places a glass of Jack Daniel’s whiskey on a coaster for an arranged photograph during a media preview of the Jack Daniel’s Lynchburg Barrel House in Tokyo, Japan. (Bloomberg pic)

NEW YORK: In tiny Purcellville, Virginia—the state some consider the birthplace of American whiskey—Becky and Scott Harris just spent US$100,000 to build up their business in Europe.

Now the owners of Catoctin Creek Distilling Co. fear an escalating trade war means that investment could go bottoms up.

The Harrises, who already sell their signature rye whiskey and other spirits in about half of US states as well as Germany, Italy and Singapore, had been planning to expand sales to Holland and the UK by the end of this year. But when the European Union slapped 25% on American whiskey in response to the Trump administration’s own duties, the distillery was left scrambling for a new game plan.

“This year we launched into these countries with redistribution, and we’re really ready to just go, go, go, and then—almost right away—these tariffs come on,” said co-founder and general manager Scott Harris. “If the tariffs hold up for a longer time, we’re going to have to refocus our growth objectives, sell more in the US and basically wait on anything going into Europe—which is really a shame.”

Across America, the EU tariffs—plus similar measures from Mexico and Canada—are shaking up the whiskey industry. For well-known brands, like Brown-Forman Corp.’s Jack Daniel’s, name recognition may be strong enough that European buyers will swallow a price hike. The company has said a 25% tariff on its whiskey will translate to about a 10% increase at the customer level.

“We believe that we are positioned fairly well to withstand the tariffs, but only time will tell how consumers will react in the EU,” Phil Lynch, a spokesman for Brown-Forman, said last week in an email.

But the ability to raise prices while keeping a steady hold on an existing customer base is not something every distiller can enjoy. For closely held companies that operate on a much smaller scale, a 10% price increase on European liquor-store shelves could spell disaster.

“It’s a huge disappointment,” said Matt Hofmann, co-founder of single-malt whiskey producer Westland Distillery in Seattle. “It’s just the US feeling the effect of the tariffs, so when we go out there and put our single malts next to other single malts from around the world, we are going to be feeling that.”

Buffalo Trace Distillery, a family-owned whiskey maker based in Frankfort, Kentucky, doesn’t think it can pass on tariff-related price hikes to its European buyers, so it’s cutting the price of spirits it sells to some if its overseas distributors by about 10%. That should help keep its whiskey prices stable—but means a slice off its own profits.

“It has injected quite a lot of instability into the whiskey world.”

“It’s hard to tell what the consumer impact will be because American whiskey is a particular flavour profile, so I don’t know if someone’s prices go up by 10%, whether or not people will suddenly flood out of whiskey,” Chief Executive Officer Mark Brown said.

For a company like Buffalo Trace that’s making whiskey now to be sold in seven to eight years after aging, the uncertainty surrounding the tariffs is particularly challenging. The company is currently preparing about 203,000 barrels of bourbon for domestic and global distribution in 2025. It had been aiming to sell as much as 5% of that abroad, up from less than 1% of sales today, with a focus on China, India and Europe, among others.

“I sincerely hope that the trade war hasn’t escalated into some sort of huge problem with 100% tariffs by the time we get to 2025,” Brown said.

That uncertainty has some family-owned distillers playing the waiting game. Westland Distillery has been exploring expansion plans to Europe, Japan and Australia within the next 24 months, but those plans could be in flux, co-founder Hofmann said. “It has injected quite a lot of instability into the whiskey world,” he said.

For the Harris family in Purcellville, the European market was supposed to represent 25% revenue this year—a significant share for a company of just 20 employees. It started spending the US$100,000 in 2013 with a focus on Germany and Italy, with the expansion into its new markets expected to take off this year. Now, Catoctin Creek won’t be sending another shipment to the continent until either tariffs are lifted or a European customer places an order where they’re swallowing the tariff cost.

“The only option that we’re really left with,” Scott Harris said, “is to tread water and see how long this will check out.”